Liquidity Is Breaking And The Economy Is Next | Michael Howell
Episode publishedPodcast: Forward GuidanceForward Guidance
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Alright. Welcome back to another episode of Ford guidance. And joining me today is repeat guest, Michael Howell of Cross Border Capital, the the man with the knowledge of liquidity. Michael, great to have you back on the show. How's things? Well,
hi, Felix. Pretty good. Thanks. Yeah. But a lot of a lot of things going on in markets right now, so I'm sure there's a lot to do with that. Yeah.
Yeah. A lot of crosscurrents for sure. Super excited to catch up with you. There's a lot of moving parts, especially within the bank reserve, system and liquidity as a whole, and I I wanna deep dive into that. And so I'm actually gonna take the liberty in this episode of of assuming that my my audience, which I know they have, have have been regular listeners to yourself. So we're gonna assume some knowledge there and do a bit of a deep dive in this episode and get into some some pretty unique topics. And the first topic that I wanna get into today is really around understanding the banking re
I think we can we can actually go into detail of where where we think the the limits are, and we think we're we're actually very close. And, you know, I'd go on record to say that if you if you extrapolate, what's happening at the Federal Reserve, it's quite unlikely that, you know, to put it bluntly, the the the money runs out probably this September. So we're very close to that threshold, that dangerous threshold. And if you look at repo markets, I mean, repo markets are are starting to see, you know, widening spreads. I mean, that's for sure, consistently widening spreads. And that must be
Totally. Okay. So, Michael, maybe what we can do here to just get everybody up to speed is if you could just get us up to speed on what you've called this pump and dump that we've gone through the last couple years of of these these more unique levers that they've been pulling to to make sure that we can get we can flow through this this phase towards managing liquidity as a whole. To your point, it's not just about bank reserves. There's also a lot more dynamics about it. So okay. We're we're getting to this point where we had almost too many reserves in 2021, but then we got to this point wh
Okay. Well, let let me first start on what you've described as the pump and dump, which I think is a big, big deal, and I think it's not properly focused on. It's been aired by the administration, something that they've been concerned about. And this was really activities that Powell and Yellen got up to in 2024, arguably, allegedly, to try and get Biden reelected. I mean, clearly that failed. But there was a secret or hidden stimulus that went through The US economy. Now, I'll talk about that, then I'll go on to, say something about the structure of the financial system, why this matters, dri
Yeah. So I do wanna get into the implications of of what needs to happen next in in a second, but I do wanna clarify a few things before we get into that. So if you go back to that first chart that you just mentioned there, when you use these these definitions of of not QE, QE, not yield curve control yield curve control, What I assume is these are shorthand definitions to say effectively we have fiscal and monetary duration management. It it you're not necessarily saying this is, you know, large scale asset purchases. You know, we had a few weeks ago, Powell's on testimony at the Senate where
Let's be clear. What I'm saying is that what we need is more more liquidity into the system. Mhmm. And that basically means an expanding. I mean, our definition of liquidity, is essentially the balance sheet
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